RICS recognises the importance of valuers exercising professional judgement in the course of their work – but, as a regulator, the organisation also needs to ensure that such judgement is sound, reasonable and consistent with its standards.
This judgement means that valuers are expected to apply their expertise, experience and professional judgement to consider various factors that may influence valuations.
Regulators use various means to assess judgement
RICS Regulation assesses the soundness of such judgement in a variety of ways.
- Documentation and explanation: valuers should thoroughly document their analysis, methodologies and the reasoning behind their judgements. Clear and comprehensive file notes help regulators understand the basis for valuers' decisions and assess the appropriateness of their judgement.
- Ensuring consistency with RICS standards: the Profession Support and Assurance teams that form part of RICS Regulation conduct a rolling programme of regulatory and member support reviews to monitor registered valuers' compliance with RICS Valuation – Global Standards (Red Book Global Standards) and other RICS standards. The staff on these teams are experienced valuers and their work ensures members' adherence to standards, including the use of sound and reasonable professional judgement. The teams can assess whether a particular valuer's judgement aligns with established valuation standards and guidelines. If there is a deviation from these, that valuer should provide a robust justification for their approach.
- Benchmarking: RICS may compare the valuer's judgement with sector-wide benchmarks – such as available market data, the appropriateness and comparability of the transactional evidence relied upon by the valuer, and generally accepted valuation approaches and methodologies – and common practices to assess whether it is within reasonable bounds. This helps identify outliers or instances where the valuer's judgement differs significantly from the norm.
- Qualifications and experience: RICS will consider valuers' professional qualifications and experience when assessing the soundness of their judgement. Valuers with relevant expertise and experience in the specific asset or sector are more likely to make sound judgements. Valuers should not work in areas where they do not have the skills and experience to undertake valuations competently.
- Continuing professional development (CPD): RICS requires valuers to engage in CPD to stay up to date on professional practices, standards and methodologies. Ensuring that valuers are well informed contributes to the soundness of their judgement.
It's important to note that the assessment of valuer judgement is a complex process. RICS may therefore use a combination of these methods to ensure that valuations meet the required standards and are conducted with integrity and professionalism.
Guidance offered but context must always be considered
As well as seven mandatory valuation standards, Red Book Global Standards contain valuation practice guidance – applications (VPGAs).
These concern the implementation of the standards in specific contexts, whether for a particular purpose or in relation to a particular asset type, and can help the valuer form a reasonable judgement for those circumstances.
VPGAs cannot cover every situation, though, and the valuer must always have regard to the facts and circumstances of individual assignments when forming valuation judgments.
Valuers should also remain alert to the fact that individual jurisdictions may have specific requirements that are not covered by this guidance. Please refer in such cases to Red Book Global Standards national supplements and jurisdiction guides.
Red Book Global Standards – updates
Red Book Global Standards is being updated through 2024.
The draft timeline for updates is currently early summer 2024 consultation, autumn 2024 publication with an effective date of 31 January 2025.
For summary information as to the proposed nature of the changes, please see here.
Valuers responsible if proceeding when conflicts perceived
Although they may take into account the views of prospective clients in deciding whether recent, current or anticipated involvements create conflicts of interest, it remains valuers' professional responsibility to decide whether or not to accept instructions, having regard to the principles of the RICS Rules of Conduct.
If they accept an instruction where material involvement has been disclosed, a valuer may be required to justify this decision to RICS. If they do not provide a satisfactory justification then RICS may take disciplinary measures.
Members should refer to the current global edition of RICS' Conflicts of interest for additional information, as well as our supporting material on valuation conflict of interest case studies.
Expertise and clarity needed to navigate uncertainty
In recent years, markets have been affected by events such as Brexit, the COVID-19 pandemic and Russia's invasion of Ukraine, all of which have introduced an element of uncertainty to many valuers' assessments.
However, valuation technical and performance standard (VPS) 3, para 2.1(o) reminds us that 'valuers should not treat a statement of material uncertainty expressing less confidence in a valuation than usual as an admission of weakness. It is not a reflection of their professional skill or judg[e]ment but a matter entirely proper for disclosure. Indeed, if a failure to draw attention to material uncertainty gave a client the impression that greater weight could be attached to the opinion than was warranted, the report would be misleading.'
Uncertainty about a valuation resulting from a shock to the market does not mean that valuers are unable to use professional judgement; in fact, such judgement becomes even more critical in these situations, along with the need to put that judgement into a clear context.
While market shocks can introduce challenges and complexities, valuers must rely on their expertise and judgement to navigate through any uncertainty. It is in these situations that valuers need to be flexible, adaptive and proactive in responding to changing market conditions.
Using their judgement, they can make informed decisions about assumptions, risks and uncertainties, ensuring that the valuation reflects the current economic reality as far as possible, thus allowing the client to make an informed decision in the context of the particular circumstances.
Valuation uncertainty is dealt with in more detail in VPGA 10 of Red Book Global Standards, paragraph 3.5 of which states that 'it would not normally be acceptable for a valuation report to have a standard caveat to deal with material valuation uncertainty.
'The degree to which an opinion is uncertain will normally be unique to the specific valuation, and the use of standard clauses can devalue or bring into question the authority of the advice given. The task is to produce authoritative and considered professional advice within the report. Issues that affect the degree of certainty should be reported in this context.'
Uncertainty generated by a lack of comparable evidence should also not prevent a valuation being performed but calls for valuers to draw on their skills, expertise and judgement to contextualise their advice. Further guidance on dealing with a shortage of evidence is provided under section 7 of the Comparable evidence in real estate valuation professional standard.
RICS resources support valuers' practice
The sensible exercise of professional judgement by RICS members, underpinned by their knowledge, experience and competence, enhances the accuracy, reliability and credibility of the valuations they produce.
It helps manage risk, ensures compliance with standards and regulations, and fosters trust among clients and stakeholders.
To help valuers comply with the requirements of Red Book Global Standards, framework documents for taking instructions, creating terms of engagement, site inspection notes, valuation reports and covering letters can be downloaded free of charge from RICS, among other documentation.
RICS Regulation also runs regular, free compliance workshops online to support valuers in meeting the requirements of Red Book Global Standards.
'The sensible exercise of professional judgement by RICS members enhances the accuracy, reliability and credibility of the valuations they produce'
Application of professional judgment in valuation
All four articles in this series are available to read in Property Journal:
RICS valuation review
Between September and December 2023, RICS ran a consultation on proposed changes to its regulatory schemes for registration of valuers and regulated firms.
The aim was to implement the recommendations of the valuation review conducted in 2021 and strengthen RICS' assurance regime for valuation.
As part of the consultation, feedback and evidence was gathered from stakeholders including valuers, valuation firms and clients, as well as others who rely on valuations.
Measures to strengthen RICS' regulatory policy will now be considered by the Standards and Regulation Board (SRB).